Sy Jacobs of Jacobs Asset Management has a solid track record when it comes to buying and selling bank stocks. He started warning of a potential credit crisis and banking problems in 2005.
He was so confident in his positions that he sold his New York City loft and rented a townhouse until the storm had passed. A look at his year-end 2007 SEC filings shows that he was selling many of his bank and financial stocks, and one of his biggest positions was puts on the Russell 2000 index.
By 2013, he was turning bullish again and even bought a townhouse in Manhattan and was buying bank stocks once again. His firm recently filed its 13D with the Securities and Exchange Commission, giving us a look at his activity in the first quarter of 2016.
Given his track record, it makes sense to further investigate the stocks he was buying to start the year. And among his purchases were banks that are heavily tired to the energy sector.
If you want to play banks like Mr. Jacobs, here are three “energy financial” stocks to buy.
Bank Stocks to Buy for a Portfolio Energy Boost: MidSouth Bancorp, Inc. (MSL)
Investors have been dumping shares of MidSouth Bancorp, Inc. (MSL) over the last year, as the bank has a large exposure to energy loans. In fact, about 20% of the loan portfolio is energy related.
The stock is down 27% over the last year, and now sells at just 66% of book value. During the first quarter, Mr. Jacobs was happy to buy what they were selling as his funds purchased an additional 397,344 shares to bring his total holding of the bank to 923,565 shares of the stock.
If energy prices strengthen, or even just stabilize around current levels, conditions at the Lafayette, Louisiana based bank should improve rapidly and the price could recover much of the ground lost in the last two years.
Bank Stocks to Buy for a Portfolio Energy Boost: Hancock Holding Company (HBHC)
His second largest purchase in the quarter also has substantial energy exposure. Gulfport, Mississippi based Hancock Holding Company (HBHC) has about 10% of its loan portfolio exposed to the energy sector and investors have shunned the stock because of this exposure.
The stock is trading at just 84% of book value, so if energy remains stable, there could be substantial upside to the stock. The bank is focusing on growing the portion of the bank that is not involved in energy, as President and CEO John M. Hairston told investors in a recent press release:
“Core pre-tax, pre-provision earnings improved in the first quarter despite the impact of today’s energy cycle … While the volatility of the current energy cycle continues to overshadow the progress we are making towards meeting our goals, we remain focused on growing the non-energy portion of our company and is the reason we set our 2016 goal at pre-tax, pre-provision earnings growth.”
Mr. Jacobs seems confident they will succeed as he purchased 257,500 shares in the most recent quarter, bringing his total holding to 320,000 shares of the bank.
Bank Stocks to Buy for a Portfolio Energy Boost: Texas Capital Bancshares Inc (TCBI)
He also showed a high degree of confidence in energy prices and loan quality by opening a new position in shares of Texas Capital Bancshares Inc (TCBI).
The Dallas-based bank serves its hometown as well as the Austin, Fort Worth, Houston and San Antonio markets in Texas. Largely because of the markets it serves, about 6% of the loan portfolio is exposed to energy prices. Energy loans decreased by $100 million in 2015 and management expects the number to drop further in 2016.
The bank intends to focus on other areas like mortgage lending and non-energy related commercial real estate lending to grow the bank, while the energy exposure is reduced.
Mr. Jacobs must like their chance of meeting their goals, as his funds purchased an initial position of 33,791 shares of the bank in the most recent quarter.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities. He is the author of the Banking on Profits newsletter covering the community bank stock opportunity and the Deep Value Report that seeks out undervalued stocks that are likely to survive until they thrive and capture the value effect that has been proven to beat the market over time.